Flat Extra Premium

Three applicants are identical in age, build and medical history. One is a bookkeeper, one an underground miner, and one a commercial crab fisherman. The underwriter issues all three but adds an extra charge to the last two. What is she pricing, and how is that extra mortality usually charged?

1. A.A moral hazard, charged by declining the risk outright.Moral hazard concerns an applicant's honesty and integrity. Dangerous work is not a character trait, and declining is not a pricing method in any event.
2. B.A physical impairment, charged by a permanent table rating applied to the whole policy.A table rating expresses medical impairment as a multiple of standard mortality. These applicants have no impairment; the extra risk comes from where they work, not from their bodies.
3. C.A change in health class, charged by moving them to a tobacco rate.Tobacco status is a separate underwriting question with its own rate class. Occupation does not move an applicant into a tobacco class.
4. D.An OCCUPATIONAL hazard, extra mortality arising from the work itself, commonly charged as a FLAT EXTRA of a stated amount per thousand of face amount.Correct. The added risk is a constant number of extra deaths per thousand lives, which a flat extra prices directly and which may be permanent or temporary.

Why: This is an OCCUPATIONAL hazard: additional mortality arising from the work itself rather than from anything about the applicant's health. Because the extra risk is a roughly constant additional number of deaths per thousand lives rather than a percentage of the applicant's own mortality, it is normally charged as a FLAT EXTRA of a stated dollar amount per thousand of face amount. A flat extra may be permanent, as with a hazardous occupation, or temporary, as with a recent medical event.

An underwriter accepts a mountain-climbing applicant but adds a charge of $2.50 per $1,000 of face amount, which the insurer will remove if he gives up climbing. This charge is a:

1. A.Rate-up in ageRating up the age treats the insured as older to raise premium - an older method for health risks, not activity hazards.
2. B.Table ratingTable ratings are percentage multiples of the standard premium used for medical impairments - not per-$1,000 charges for hobbies.
3. C.Class-wide premium loadingLoadings built into rates apply to everyone in a class - this charge targets one insured's specific avocation.
4. D.Flat extra premiumCorrect. A per-$1,000 dollar charge for a specific hazard, removable when the hazard ceases, is the classic flat extra.

Why: A flat extra premium is a fixed dollar amount per $1,000 of coverage added for a specific hazard - typically an avocation or occupation - and is often temporary, removable when the hazard ends. A table rating, by contrast, is a percentage multiplier tied to health impairments.